You know bankruptcy and missed payments, but they can be just as bad.
You pay your bills on time and never miss a payment. If you’re still having problems with credit, something on your credit report could scare lenders.
Everyone knows the gremlins that haunt the major credit reports: items such as bankruptcies, foreclosures and payments, late or even missed. Less dramatic items can also cause some anxiety among lenders inconsistent.
When you apply for a loan or a card account, lenders review your credit score and pull your credit report. Or they can take this report and pump through one of their own rating systems.
If they do not like what they see, you may be rejected. Or you can get approved with less favorable conditions. And it’s not just new applicants who have run the gauntlet. Credit card issuers to periodically review the records of existing customers, too.
Even more confusing is that different lenders zero elements of the credit report. So it’s quite possible that even for the same loan, no two lenders will see your credit history, in exactly the same light.
Think there might be something hateful about hiding your credit report? Here are six items that could scare lenders.
1. Multiplying Lines of Credit
Opening a new map is normal. Opening three in a short period of time could signal something bad happens in your financial life.
When it comes to card issuers of credit, “the window auditing has shrunk,” said Norm Magnuson, vice president of public affairs for the Consumer Data Industry Association, the trade association of companies credit. “It used to be months and months. Now, you will find firms that monthly monitoring of account or every two months.”
And the only thing that these issuers do not want to see is that you ask all in town to lend you money.
“It would raise some questions,” he said. “This could be an indicator of something going on. I do not think it’s in the best interest of all consumers to go and be a collector of credit lines.”
2. A short-sale housing
“We told people short sales will not hurt their credit,” says Maxine Sweet, vice president of public education for Experian credit bureau. “But there is no such thing as a” short sale “in terms of how the sale is reported to us.”
“The way the account is closed is that it’s settled for a lesser amount than what you agreed to pay originally,” she said. “Status is” settled “. And it is just as negative as a foreclosure. ”
A tip: negotiating for the lender does not report the difference between your mortgage and what you paid as a “balance due” on your credit report, says John Ulzheimer, formerly of FICO, now president of consumer education for SmartCredit.com. Your credit score will take a heavy blow, but this action will not soften the blow, he said.
Sweet’s advice is not to dismiss the notion of a short sale, just go on with your eyes open.
“This may be the right decision to leave the house,” she said. It can be “better than a foreclosure in the economy, moving from the house and move on with your life. Do not expect to walk away with no impact on your credit history. ”
3. Someone Else’s Debt
Here’s something you might not know: When you co-sign on the dotted line to help someone else get a loan or card, the entire debt is on your credit report.
While the fact that you co-signed is neither good nor bad, it means – to the extent that any potential lenders are concerned – you of the debt yourself. And will be included in your existing debt burden when you apply for a mortgage, credit card or any other form of credit, said Ulzheimer.
And if the person you co-signed stopped paying, paying late or missing payments, that bad behavior is likely to go on your credit report.
So when someone tells you that co-signature is painless, because you never have to part with a penny, you can tell them that this is not true. Co-signing means accepting not only to repay the obligation, if necessary, but also to allow the debt – and all non-payment – as against you the next time you apply for credit you same.
Co-signing for a friend or family member “plays well with the Thanksgiving table, but it does not play well in the underwriting office,” said Ulzheimer.
4. Minimum Payments
If creditors make money when you carry a balance, the lenders who view your credit report does not like to see you pay just the minimum.
“It suggests that you are experiencing financial stress,” says Nessa Feddes, vice president and senior advisor for the American Bankers Association. “You can be delinquent,” she said.
Pay the minimums from time to time does not necessarily signal a problem, she said. For example, minimum pay in January, after holiday spending. Minimum one month or pay you expect your annual premium to reach.
But always pay the minimum after months months signals that you can not pay the full balance, and your current and future lenders will see that as a red giant “stop” sign when it comes to grant additional credit.
5. A Lot of Inquiries
This is similar to hiring a large number of new loans. When tightened lending standards, many borrowers, subprime borrowers in particular, had trouble getting credit, said Sweet. This meant they had to be applied several times to try to get what they wanted.
And with the VantageScore at least, that “really influenced the impact of investigations – they are more important than they used to be,” she said.
With the FICO score, the impact of investigations has remained about the same, according to Ulzheimer. Every time you allow a potential lender to pull your credit report, your score can take a small hit. The exact impact varies with the consumer, the score and the number of inquiries.
And if you apply for a mortgage, auto or student, you can minimize the damage by all applications within two weeks. When you do this, the beam score of all similar investigations and treats them as such. Unfortunately, there is no grace period for applications like credit card.
6. Cash Advances
“Cash advances, in many cases, provide the despair,” says Ulzheimer. “Either you have lost your job or are underemployed. Nobody comes out cash advances against a credit card because they want the money sitting in a bank somewhere.”
Because the interest rate is usually higher than the cost of credit card “, you are usually borrow from Peter to pay Paul,” he said.
How it hurts: first, the cash advance is immediately added to the balance of your debt, which lowers your available credit and can lower your credit score, says Ulzheimer. And all potential lenders will see your score.
Second, card issuers more regularly re-evaluate the behavior of their customers. To do this, they often get the credit report, the FICO score and history of the customer’s account and put these three ingredients through their own rating systems, said Ulzheimer. Many scoring models penalize for cash advances, which are often considered risky, he said. From your account history is only available to the issuer, only your behavior score with this card is likely to be affected, he said.
However, if the issuer slices of your line of credit or cancel your account, which could affect your credit score. And that could affect your relationship with other lenders.
Interest rates on cards are likely to be affected much differently than those on consumer loans.
Stocks have kept investors on edge during the past week as the Dow swings from boom to bust. For consumers, it’s a good time to step away from the market mayhem to survey the damage and potential threats to their finances.
One area that is getting short shrift — but shouldn’t — is the impact the Standard & Poor’s debt downgrade may have on credit card rates.
First, some background. The downgrade on U.S. Treasury bonds that was issued by ratings agency Standard & Poor’s — from AAA to AA+ — was widely viewed as a wake-up call to the U.S government and its “drunken sailor” approach to spending (though that might actually be an insult to drunken sailors).
While the Fed says it will keep rates near zero, many economists expect major consumer interest rate categories to eventually rise because of the downgrade, including things like mortgage, auto and student rate loans.
It’s no big secret why. Any consumer with a low credit rating knows that he or she is a bigger credit risk to lenders, and thus must pay higher interest rates for creditors to accept that risk and loan the consumer money.
It’s the same thing with Standard & Poor’s and the U.S. government. A lower credit rating means that global creditors face a higher risk of default when lending money to Uncle Sam. To borrow money — usually through the sale of U.S. Treasuries in the bond market — the U.S. government will have to offer higher rates of return to investors.
But here’s an interesting point. Even if Treasury yields do recover and grow again, your credit card’s interest rates may not follow the script. Why? Let’s look at three reasons:
Credit card rates aren’t tied to Treasury rates. Instead, credit card interest rates are tied to the Federal Reserve’s prime interest rate, which still remains historically low, and should continue along that path. Federal Reserve chairman Ben Bernanke has made it clear the Fed’s rate policy is to keep those rates down, despite what S&P says. That should help keep card rates manageable for consumers.
The CARD Act has a built-in safety net. Government can do something right once in a while. Take the credit card legislation passed in 2009: Inside the CARD Act is a provision that limits how much card issuers can raise rates. The reforms are limited to “current account balances,” meaning card companies can still raise rates on new charges, so be careful of new spending going into the last four-and-a-half months of 2011. But any charges you’ve already made are tied to current rates, which still remain relatively stable. A quick glance at BankingMyWay’s credit card rate search tool shows card interest rates stable between 11% and 20%, with the average credit card rate around 14%.
Standard & Poor’s doesn’t speak for everyone. Right now, S&P is out on its own with its debt downgrade. The other major U.S. credit agencies — Moody’s and Fitch ratings — didn’t go along. And until, or even if they ever do, don’t expect your credit card interest rates to rise significantly.
So call it a cloud with a silver lining. Yes, the stock market is taking a huge hit, but at least your credit card rate isn’t.